Q&A: How to select an investment fund

Question: There are many funds in the market. What are the main categories of funds?

You can choose an equity fund, a bond fund or a balanced fund, which invest in both asset types.

Over the past 10 years, a global equity fund earn an average of 10% per annum. The bond fund earn an average of 5% per annum. These averages are also reflective of the returns over a longer period.

Question: Is it risky to invest in equities?

Equities have higher risk than bonds. But the risk can be reduced through diversification. You should invest in a fund that invest in many equities. If any investment turns bad, the impact on the fund is small, and can be offset by the good investments.

If you invest for the long term, you are also able to diversify through the years. Your fund may perform well in some years and poorly in other years. But, over a long period, it is likely to give you a fairly attractive return.

Question: Is there a guarantee on my capital?

If you wish to have a guarantee, you should invest in government bonds that has the highest rating. However, the return is quite low at around 3% p.a. for 5 years.

It is better to invest in an large, well diversified fund that can give a better return, with minimal risk, over a longer period.

Question: Am I committed to invest for a fixed number of years?

You have the flexibility to choose the right time to realise your investments. If you choose a good time, you can turn risk to your advantage and realise a better return than average.

You are also allowed to realise your investment, if you need cash for other purpose without suffering any penalty (except for the termination charge in some case). You get the net asset value fo the fund.

Question: Do I have to incur high charges?

You have to check the initial, annual and termination charges on the fund. Some fund have low charges, and give a better return to the investor.